Law: Income Tax Act, 1961

Section: 40A(8),58A

Income-tax------Business expenditure---Company---Interest payment on deposits---Disallowance of 15 per cent. of expenditure---Interest paid to Directors and shareholders on their current accounts could not be disallowed---Indian Income Tax Act, 1961, S.40-A(8)---Indian Companies Act, 1956, S.58-A. The assessee was a private limited company. During the course of assessment, the Income-tax Officer noticed that for the assessment years 1980-81 to 1983-84, the assessee had claimed various amounts of interest paid. The Income-tax Officer was of the opinion that the amounts on which interest was paid were received by the assessee by way of deposits, and that as such, in terms of section 40-A(8) of the Income Tax Act, 1961 15 per cent. of the interest paid to such persons had to be disallowed. On appeal, the assessee contended that the interest paid to the Directors and shareholders was on their current accounts and, therefore, no disallowance was called for. The Commissioner of Income-tax (Appeals) gave partial relief. However, the Tribunal accepted the assessee's claim that the monies kept with the company were in the nature of running current accounts. On a reference: Held, that in view of the provisions of the Companies Act, 1956, the Press Note issued by the Central Government. the nature of the accounts, and the position of the deposits the sum received from the Directors and shareholders of the assessee did not amount to "deposits" within the meaning of section 40-A(8) of the Act, and interest on such sums could not be' disallowed. CIT v. Ashoka Marketing Ltd. (1976)103 ITR 543 (SC) and CIT v. Kotrika Venkataswamy & Sons (1971) 79 ITR 499 (SC) ref. JUDGMENT A.R. TIWARI, J. ---In compliance with the directions, dated September 22, 1988, issued by this Court in Miscellaneous Civil Case No. 141 of 1986, the Tribunal stated the case and referred the undernoted question of law arising out of the order, dated June 27, 1985, passed by the Tribunal in I.T.A. Nos.52 to 55/(Ind) of 1984 for the assessment years 1980-81 to 1983-84 connectible with applications registered as R.A. Nos. 86 to 89/(Ind) of 1985, for our opinion: "Whether, on the facts and in the…

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